Home Improvement Financing: 7 Responsible Ways to Pay for Renos and Repairs

Your home is a part of your family. It might not eat food, but it eats money, especially when it comes to home repairs and remodels. Given all the options available today, finding the right way to pay for those upgrades can be tricky. 

You want the most affordable financing, after all, but you also don’t want to sacrifice your long-term well-being. We’ll cover common types of home improvement financing that might work better for you, depending on your situation.

Table of Contents

1. 1. Savings: Best overall choice
2. 2. Home equity loan: Best for large one-off projects
3. 3. HELOC: Best for flexible financing and weekend warriors
4. 4. Cash-out refinance: Best for homeowners with high-cost mortgages
5. 5. Personal loan: Best for fast funding without home equity
6. 6. Credit cards with promotional offers: Best for credit building
7. 7. Need-based grants and low-interest loans: Best for low-income homeowners

1. Savings: Best overall choice

Pros

• Easy to set up automatic deposits

• Earn interest instead of paying interest

• Less temptation to overspend on projects

• Don’t need to meet any lender requirements

• No payment obligations or consequences of missed payments

Cons

• Saving money can take a long time

• Doesn’t help you build credit for future borrowing opportunities

• Requires financial discipline to manage money well and follow through

• May need to open a separate high-yield savings account at another bank

If you’re trying to go with the most cost-effective and stress-free route, saving up for a project clearly beats all other methods. 

Consider the scenario below. If you opt for a loan, you’re essentially tacking on another 16% to the overall cost of your project just from the financing charges. But saving up so that you can earn interest payments is like getting a 6% discount on your project.

Funding method	Interest	Project cost	Monthly cost	Total interest	Effective project cost
3-year personal loan	Pay 10% APR	$10,000	$323	Pay $1,616	$11,616
3-year savings plan	Earn 3.5% APY	$10,000	$323	Earn $650	$9,350

Plus, you aren’t obligated to make payments. If temporary financial setbacks crop up, you have more freedom to take a break from saving for a bit. And if things get really dire, you can dip into those savings.

2. Home equity loan: Best for large one-off projects

Pros

• Low, fixed rates keep payments stable and affordable

• Less temptation to keep borrowing compared to a line of credit

• Keeps your primary mortgage in place if you don’t want to refinance

Cons

• Good credit and income required

• Typically requires at least 20% equity

• Closing costs often range from 2% to 5%

• Foreclosure possibility if you default on the loan

Homeowners frequently turn to home equity loans and HELOCs because they offer lower rates than personal loans. 

For example, if you borrowed $10,000 at today’s average rates, you might save around $1,180 by going with the home equity loan:

Loan type	Interest rate*	Monthly payment	Loan term	Repayment (principal + interest)
Personal loan	12%	$222.44	5 years	$13,346.67
Home equity loan	8%	$202.76	5 years	$12,165.84

These low rates come at a cost, though. You could lose your home if you can’t keep up with payments.

Home equity loans often pair well with larger projects because you can generally borrow up to 80% of your home’s value, minus your mortgage balance. If you’ve made good progress in paying down your mortgage, that potentially opens the door to more money than you can get with a personal loan.

See more about how to use a home equity loan for a remodel.

If you’re struggling to qualify for a traditional home equity loan, especially if you haven’t built up much equity yet, you might want to look into RenoFi. RenoFi connects you with credit unions that consider your home’s after-renovation value when determining how much you can borrow. That could significantly boost your loan amount, even if you bought your home recently.

3. HELOC: Best for flexible financing and weekend warriors

Pros

• Use as a source of emergency funds

• Pay no interest if you’re not actively borrowing money

• Borrow and repay funds repeatedly during the draw phase

• Lenders offer many flexible and alternative HELOC structures

Cons

• Good credit and income required

• Typically requires at least 20% equity

• Closing costs often range from 2% – 5%

• Foreclosure possibility if you default on the HELOC

Home reno and repair projects are notorious for going over budget as new issues crop up throughout the process. That’s especially true if you’re doing the work yourself in your spare time. A home equity line of credit (HELOC) is a great solution to this because you can borrow repeatedly without needing to reapply.  

Traditionally, HELOCs allowed you to borrow whenever you want, up to a set credit limit, during a multi-year draw period. You make interest-only payments during that time, or send in extra to repay the debt early. After that, the repayment period starts. Your access to credit stops, and you repay everything.

Some lenders also offer unique twists on the traditional HELOC to help homeowners borrow more or qualify more easily. One example is RenoFi, which partners with credit unions to offer HELOCs based on your home’s after-renovation value.

This can dramatically increase your borrowing power, up to 95% of your home’s projected value, making it especially helpful for newer homeowners with little existing equity. RenoFi isn’t a lender itself but acts as a matchmaker and advisor, helping you find a loan and prepare your application.

4. Cash-out refinance: Best for homeowners with high-cost mortgages

Pros

• Potential to borrow large amounts

• Low monthly payment on “cash-out” portion

• Reset your loan terms to something more favorable

• Lower interest rates and easier qualification than home equity loans and HELOCs

Cons

• Good credit and income required

• Typically requires at least 20% equity

• Restarts your progress in paying off your home

• Higher long-term borrowing cost for “cash-out” portion

If you’re looking to renovate your home and you’re also paying a high rate on your mortgage, you can fix both problems at once by taking out a cash-out refinance loan. People also commonly use them if they’re looking to switch from a variable-rate loan to a fixed-rate loan, or to change lenders.

You can also use a cash-out refi to change your monthly loan cost, such as by stretching out your payments over a new 30-year term length. That means financing your home reno project over a 30-year period, too, which lowers your monthly cost compared to other options but drastically increases the long-term costs. (Check out our cash-out refinance calculator.)

Here’s an example. If you need $10,000 for home repairs, you can pay it off much sooner with a five-year home equity loan. But if you roll your project costs into a new mortgage, you’ll pay interest for 30 years instead of five years. So while it keeps your monthly costs low, you’ll pay six times as much in the long run. 

Loan type	Loan amount	Interest rate	Loan term	Monthly payment	Total interest paid
Home equity loan	$10,000	7.5%	5 years	$200	$2,023
Cash-out refinance*	$10,000	6.5%	30 years	$63	$12,754

5. Personal loan: Best for fast funding without home equity

Pros

• Few or no loan fees

• No immediate foreclosure risk if you default

• Quick funding timelines, often within the same day

Cons

• Higher interest rates

• Smaller loan amounts

• No tax write-off for interest charges

Many homeowners prefer personal loans for home improvement because you aren’t putting your home at as much risk of foreclosure. You never know what the future holds, after all, even if things look stable today.

Additionally, you can often get the loan funds super fast compared to other options. Some lenders, like SoFi, even offer same-day funding if you apply early enough on a normal business day.

See more about how a home improvement personal loan compares to a home equity loan.

I typically recommend funding home improvements through established savings, an expected work bonus, or, when appropriate, a HELOC or home equity loan.
However, this guidance depends on the client’s financial situation. If they haven’t yet established adequate savings or don’t have sufficient home equity (or if credit issues limit their borrowing options), we’ll work together to create a savings plan.
In cases where the project is urgent, I help clients explore personal loan options that align with their needs and budget. Ultimately, the best financing strategy depends on the project’s urgency and the client’s overall financial health.

6. Credit cards with promotional offers: Best for credit building

Pros

• Potentially easier approval with lower credit scores

• No interest if you pay off the card before the interest-free period ends

Cons

• No tax write-off for interest charges

• Temptation to overspend on unnecessary items

• Hidden “gotchas” with many retailer credit cards

Many credit cards come with promotional 0% rate offers, where you’ll get several months with no interest. If you buy something big right after opening the card and set up automatic payments so the balance is paid off before then, you won’t owe any interest at all, making it essentially an interest-free loan.

Some credit cards from retailers like Home Depot and Lowe’s feature “deferred interest” offers. You must pay them off by the end of the promo period, or the card issuers will back-charge all the interest you thought you were skipping out on.

7. Need-based grants and low-interest loans: Best for low-income homeowners

Pros

• Affordable payments, or no repayment needed at all

• Greater approval odds if you don’t qualify for traditional financing

• Funding often provided by nonprofits and governments, rather than for-profit lenders

Cons

• Limited availability of programs and options

• Money may come with strings attached, like meeting reporting requirements

• Funding is often restricted for specific purposes, such as energy-efficient upgrades or urgent repairs

Saving up or applying for home improvement financing just isn’t a reality for many homeowners, but you deserve good housing, too. You may need to get creative in looking around, but often, if you look hard enough, you can find home repair grants or low-interest loans through social services agencies and nonprofits. 

You can use 211.org to get help finding programs in your area. Here are other resources to get you started:

• USDA Section 504 Home Repair Program
• State and local housing authorities and departments
• VA Home Improvements/Structural Alterations grants
• Bureau of Indian Affairs Housing Improvement Program